The consequences of bad bookkeeping


Bookkeeping is a crucial part of running a successful business. It’s often a service that is outsourced, unless you’ve had experience in bookkeeping or accounting, it can be a difficult topic to get your head around.

What is bookkeeping?

Bookkeeping is the role of recording a company’s financial transactions. It’s an activity that should be completed regularly in order to understand your business's finances.

There are two ways you can implement bookkeeping: Cash Basis and Accrual Basis.

Recording transactions on a cash basis involves only recording transactions when cash is actually entering or leaving the business account. E.g., if a customer is paying by credit card and their money doesn’t enter your accounts until next month, the transaction will not be recorded until next month.

Utilising an accrual basis when bookkeeping means that the transaction is recorded as soon as it occurs, even if the cash isn’t in your accounts. E.g., if a customer is paying by credit card the transaction will be recorded straight away, even though you don’t have the cash in your business.

What problems can occur from poor bookkeeping?

Cash flow problems

If your accounts aren’t run efficiently or up to date then it’s likely you will run into cash flow problems. There are a lot of monthly outgoings that must be paid as a business owner and if you’re not on top of your accounts then you could find yourself in a situation where you can’t afford to pay these outgoings.

If you’re regularly tracking the cash that’s going in and out of your business then you’ll be clear on how much money you have and what you can afford, putting your business in a better position financially and for growth.

Poor business decisions

If you’re unclear of the financial health of your business then you won’t be able to make accurate business decisions. Whether it’s hiring an employee or investing in more stock, where your finances are will be crucial in weighing up whether the decision is right or wrong for your business.

You risk the wrath of HMRC

If you are VAT registered, it is inevitable at some point HMRC will carry out some form of enquiry into your records. It could take many different forms but from our experience being super organised with your bookkeeping, having digital copies of any receipts they ask to see and being able to answer their questions quickly and in detail is the easiest way to put an inspectors mind at ease and move them on as quickly as possible.

Even if you are not VAT registered HMRC could dig into your records in relation to other taxes such as Corporation Tax so you aren’t off the hook just because you might not be registered for VAT.

It’s pretty clear that bookkeeping is an important part of your business and needs to be considered if you’re not thinking about it already. However, we understand it can be hard to start. Are there certain processes? What’s the best way to track it? If you’d like any support in managing the finances of your business then feel free to get in touch here.